Palestinian president returns to hero's welcome

RAMALLAH, West Bank (AP) -- The Palestinian President Mahmoud Abbas has returned home to a hero's welcome after winning a resounding endorsement for Palestinian independence at the United Nations.

Some 5,000 people thronged a square Sunday outside Abbas' government headquarters in the West Bank. Many hoisted Palestinian flags and balloons in the colors of the flag.

Abbas told the crowd that "we now have a state" and that "the world has said loudly, 'yes to the state of Palestine.'"

The U.N. decision to recognize Palestine as a nonmember observer state does not change the situation on the ground.

The Palestinians believe the strong endorsement will boost their leverage in future peace talks.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.

Israel on Sunday roundly rejected the United Nations' endorsement of an independent state of Palestine, and announced it would withhold more than $100 million owed to the Palestinians in retaliation for their successful statehood bid.

It was the second act of reprisal since the U.N. General Assembly voted overwhelmingly on Thursday to support the Palestinians' statehood initiative. Less than 24 hours later, Israel announced it would start drawing up plans to build thousands of settlement homes, including the first-ever residential developments on an ultra-sensitive piece of real estate near Jerusalem.

Prime Minister Benjamin Netanyahu declared the statehood campaign, led by Palestinian President Mahmoud Abbas, as "a gross violation of the agreements signed with the State of Israel."

"Accordingly, the government of Israel rejects the U.N General Assembly decision," he said. Israel, backed by the U.S., campaigned against the statehood measure, arguing that only negotiations can deliver a Palestinian state.

The U.N. resolution spelled out the borders of a future Palestine, endorsing the Palestinian position that it comprise the West Bank, east Jerusalem and Gaza Strip, territories captured by Israel in the 1967 Mideast war. Israel rejects a full pullback to its 1967 lines, and says the resolution is a way to bypass border negotiations.

In Sunday's response, Finance Minister Yuval Steinitz said the government would also strike at the Palestinians' pocketbook, by withholding taxes and customs collected from Palestinian laborers and businesses on behalf of Abbas' cash-strapped Palestinian Authority, which led the statehood campaign.

The money will be used to help pay off the authority's debts to Israel, including $200 million owed to the state-run Israel Electric Corp., government officials said. This month, more than $100 million was to have been transferred; Steinitz said Israel would decide later whether to withhold future transfers as well.

The General Assembly decision late Thursday to accept "Palestine" as a non-member observer state in the West Bank, east Jerusalem and Gaza didn't grant actual independence to the 4.3 million Palestinians living in those areas.

Israel remains an occupying force in the first two territories and continues to severely restrict access to Gaza, ruled by the Hamas militant group.

Nor does the vote plaster over the rift in the Palestinian leadership that has led to the emergence of dueling governments in the West Bank and Gaza.

But by sidestepping two decades of troubled negotiations -- include the latest four-year impasse -- and going straight to the U.N., Palestinians hope to redouble global pressure on Israel to negotiate the borders of a future Palestine.

Netanyahu sounded anything but bowed on Sunday.

"Today we are building and we will continue to build in Jerusalem and in all areas that appear on Israel's map of strategic interests," he told his Cabinet.

Half a million settlers currently live in the West Bank and east Jerusalem, the result of a decades-long strategy aimed at blurring the borders between Israel and the occupied territories.

The U.N.'s endorsement of the Palestinians' vision of their future state was a resounding condemnation of Israel's settlement policies. Israel's failure to rally any major European powers, including its closest allies, to its cause came as a stinging diplomatic blow.

Israel took little time to respond. Israel announced Friday that it would press ahead plans to build 3,000 housing units in the West Bank and east Jerusalem, the core of the Palestinians' hoped-for state.

More worrisome for the Palestinians, it vowed to dust off a master plan to build 3,600 apartments and 10 hotels on the section of territory east of Jerusalem known as E1. The Palestinians have warned that such construction would kill any hope for the creation of a viable state of Palestine.

After the sacred city of Jerusalem, this stretch of territory is the most fought-over piece of territory in the Israeli-Palestinian conflict: Building there would sever the link between the West Bank and east Jerusalem, the sector of the holy city the Palestinians claim for a future capital, and cut off the northern part of the West Bank form its southern flank.

The announcement that Israel would forge ahead with construction plans also thrust Netanyahu into a new showdown with the Obama administration just days after the U.S. became the only world power to side with it in opposing the Palestinians' statehood bid.

U.S. Secretary of State Hillary Rodham Clinton said these plans "set back the cause of a negotiated peace."

Britain and France urged Israel to rescind the decision, and other European states denounced it.

The decision may be connected more to Israeli politics than an actual policy change. Netanyahu is up for re-election in Jan. 22 parliamentary elections and is eager to put on a strong face for the electorate. Actual construction could be years away, if it takes place at all.

"There is no decision to build," Housing Minister Ariel Attias told Army Radio on Sunday. "There is a decision to plan. You can't build an apartment without planning."

New figures from Israel's Central Bureau of Statistics showed that Netanyahu has actually slowed settlement construction over the past year.

The latest figures found that Israel began construction on 653 new settlement homes in the first nine months of 2012, down 26 percent from 886 housing starts during the same period a year earlier.

The anti-settlement Peace Now group said the figures were not precise because the bureau relies on reports from settlement leaders, who are not always timely and accurate. The bureau maintains its statistics take such things into account.